Since, it is not clearly mentioned if it is ordinary insurance policy or unit linked insurance policy(ULIP) i am herewith providing my view if it is a ULIP.
Legal Background:
The words used in Section 10 sub-section 10D begins with "any Sum" so it has to be interpreted with inclusively all sums received, the clause (c) of the above said section reads as under:
"(c) any sum received under an insurance policy issued on or after the 1st day of April, 2003 but on or before the 31st day of March, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured"
Hence, all sums received under an insurance policy (sum assured+bonus+any other sum) will be exempt only if following conditions are satisfied:
(i) Insurance policies should be issued during 1st April, 2003 to 31st March, 2012. (This is satisfied in this case since it is issued in the year 2010)
(ii) Actual Insurance premium "payable" for any of the years during the policy should not exceed 20% of the Sum assured.
Facts of the Case:
Section 194DA contains that deduction of 2%(till 31st May, 2016) of the insurance sum received under a policy if the said sum received is not exempt U/s 10(1D).
Kindly refer the below link what the CEO of myinsuranceclub.com have to say about unit linked insurance plan.
https://www.sify.com/finance/quick-facts-about-section-10-10-d-of-the-income-tax-act-news-income-tax-obvkMPcgafbsi.H T M L
Keeping the actual scenario of the insurance apart, there is second way of treating the same for tax, that is a more clever route to put it across differently:
The units what is given by the insurance Company find place in Section 2(h) clause (ib) of Securities Contracts Regulation Act, 1956 as "units or any other instrument issued by any collective investment scheme to the investors in such schemes" and it can be interpreted to include the units as security which is a Capital Asset within the definition of Section 2(14) of the Income Tax Act, 1961.
Hence, it can also be considered as a capital gain tax it as a Long Term Capital Gain and indexation benefit is available since it is a LTCG.
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